I thought about entitling this post, “Goldman Gets Blasted For Selling a ‘Sh-tty’ Deal,” a phrase borrowed from an internal Goldman Sachs email that Senator Carl Levin chose to cite in his questioning of current and former Goldman Sachs executives during Tuesday morning’s investigative hearings into the financial crisis. But then I thought about all the kids who might see that and giggle, instead of thinking more deeply about the grown-up world they are soon to enter, one characterized by Wall Street firms that can borrow from the Fed, take federally insured deposits, and also act really, really nasty in the marketplace.

In his opening statement, Senator Levin characterized Wall Street’s ethics as “unbridled greed.” He then cited the “sh-tty deal” several times and I even think he enjoyed saying it on national television, knowing full well that despite all of the fine sentence parsing by Goldman’s executives, everyone watching the hearings would know exactly what was meant by that colorful phrase—the citation comes from an internal Goldman email noting, “Boy, that Timberwolf deal was really sh-tty.” Levin then said that evidence showed that Goldman sold that deal to its clients even after noting its poor quality. The respondent, former Goldman partner Daniel Sparks, said he did not know that to be true.

“Well, there are prices in the market that people want to invest in things,” Sparks responded.

The question-and-answer session grew so contentious that Republican Sen. Susan Collins (R-Maine) turned to her Democratic colleague Levin at one point, saying, “I cannot help but get the feeling that the strategy of the witnesses is to try to burn through the time of each questioner.”

Carl Levin is asking the same silly question that I’ve heard over and over: shouldn’t Goldman have told buyers that it was short?

The presumption is that Goldman has some sort of godlike knowledge that it was concealing from its customers. It’s not Goldman’s responsibility to tell its customers what they should want to buy (or at least, not on the trading/ABS side), or what Goldman wants to buy. It’s Goldman’s responsibility to make sure that its clients have all the relevant details about the securities. Clients buy stuff from Goldman all the time that some part of Goldman is short; differences of opinion are what make marriages and markets.

It is true that clients would like to know what Goldman is doing, but it’s also true that the seller of the house I just bid on would like to know what my reservation price is. That doesn’t mean that I have some obligation to disclose this information. These are large securities firms that are presumed to know how to evaluate a security; if they can’t, they should turn in their charter and disband.

Goldman was making a bet. That bet could have gone wrong (not in this case, but in many similar). Other firms had different opinions of the market. Goldman was under no obligation to disabuse them of their opinions. They’re not investment advisers; they’re securities issuers.

Sen. Claire McCaskill is continuing to push her Goldman-as-casino analogy at today’s governmental affairs hearing, telling Goldman Sachs executives this afternoon that “you all are the house. You’re the bookie.”

“People are booking their bets with you,” she continued. “That’s what they’re doing. That’s what a synthetic CDO is. I don’t know why we need to dress it up. It’s just a bet.”

McCaskill fist introduced this analogy in her opening statement this morning, when she said: “It’s gambling, pure and simple, raw gambling. They’re called synthetic because there’s nothing there but the gamble, but the bet.”

Finally, after hours of grilling former and current Goldman Sachs (GS) executives, the Senate Permanent Subcommittee on Investigations is hearing from CFO David Viniar and chief risk officer Craig Broderick.

As I mentioned earlier, the slant of both men is that the book of business contained any number of long or short positions in structured credit products and that there was no particular over-arching direction on the housing market in order to “get closer to home,” and mitigate risk.

Chair Carl Levin starts off by referring to Goldman’s statement that the bank was not net short in the housing market in 2008.

Viniar replies, “across 2007, we were primarily, though not consistently short, the housing market.”

Did those short positions make money in 2007?

“The short positions made money, but they offset long positions.”

Levin, referring to net profits from shorts of $3.7 billion versus net losses from long positions of $2.9 billion, presses Viniar on whether the firm had “a significant short position.”

“Not on a net short basis,” replied Viniar.

“I’m not talking about net,” Levin cut him off.

“Yes,” Viniar finally conceded.

Levin concludes the firm’s public statements were misleading because the firm did have a significant short position. .

“I don’t think we were misleading,” says Viniar. “If we did not have a significant long position, we would not have had that short position.”

As Goldman and the Senate Committee on Investigations are duking out The Battle of the E-Mails, with each side claiming the other has painted a misleading picture, it is becoming pretty clear that Goldman, contrary to its sanctimonious twattle about putting clients first, actually puts its fees first.

This should come as no surprise to anyone who had dealt with the industry; indeed, any other behavior would be surprising. Transaction-based revenues, not surprisingly, induce participants to complete more trades, the bigger and higher margin, the better. The old-school style of cultivating relationships and taking a protective posture towards clients went out of fashion in the age of the dinosaurs, meaning roughly the 1980s.

While the securities industry had always focused on getting deals done, deregulation has led to changes in industry structure and conduct which in turn unleashed much more aggressive behavior (we discuss this issue long form in ECONNED).

Washington Mutual Inc. and its Long Beach Mortgage Co. subprime-lending unit rang up one of the worst failures in U.S. history. Left in the wake were billions of dollars of soured loans and questionable lending practices…

Recently released emails and other documents, including securities filings, show how Goldman, considered one of Wall Street’s most elite banks, built its mortgage business by closely working with lenders such as Washington Mutual and Long Beach, two firms that “polluted the financial system” with souring loans, according to a Senate review of Washington Mutual on April 13.

Yves here. There is a little problem with this account. Anyone who was in the subprime business would have dealt with some crappy lenders. So while Goldman is fair game for criticism here, why aren’t the other major firms also being raked over the coals?